August 10th, 2018.

Valuing your business is an inexact science, but there are guidelines to follow.

There are three main approaches to valuing a business, asset-based, cash flow based and an analysis of comparable companies.

Using the asset-based method, you value the assets of your business (buildings, machines, products, raw materials and any intangibles like brand if possible), sum it up and here comes the value of your business.

In most cases this is not a valuation method appropriate for small companies (as they are unlikely to have had time to build up an asset base).

Cash flow-based
Using cash flow analysis, you forecast future expected revenues and costs, arrive at an expected net profit, run the forecast for a period of time (usually five years), then calculate the terminal value (future cash flows extended into perpetuity), and apply a discount rate which reflects the time value of money and riskiness of your business to bring the cash flow to its present value.

It is theoretically the best way of valuing any company, but also the most complicated and prone to mistakes.

For a small business you might apply a.......

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